By AUBREY COHEN, P-I REPORTER

Published 10:00 pm, Wednesday, May 14, 2008

Escrow companies billed tens of millions of dollars in recent years for services they didn't provide or that cost much less than they charged, and they pocketed interest that really belonged to home buyers, four lawsuits alleged Wednesday.

The lawsuits center on reconveyance, which is the process of transferring a property title or removing a lien when a mortgage is paid off. It is part of any refinance or sale of a home with an existing loan, meaning the lawsuits could take in millions of buyers nationwide.

Home purchase and sales are big, emotional transactions involving mountains of paperwork shoved in front of consumers at a closing table, he said. "It's an industry that is just a recipe for being able to rip people off."

The firm represents Frank Cornelius of Lynnwood; Daniel and Heather Jankanish and David McFerrin, of Tacoma; McFerrin and his wife, Katherine; and Mark and Raelene Bushbeck, of Kirkland, in their respective lawsuits against Fidelity National Title Co., First American Corp., Old Republic Title and Escrow, and Chicago Title Co. The cases allege the firms violated federal real estate regulations and state laws.

Representatives of Fidelity National, First American and Chicago Title declined to comment Wednesday, saying the companies had policies against talking about pending litigation. Old Republic could not be reached for comment.

The lawsuits seek orders requiring more disclosure from companies, refunds of fees and interest to customers and compensatory damages, but do not specify amounts.

Escrow companies formerly included reconveyance as part of their coordination of transactions, but lenders themselves generally handle this now, and did so in each of the four transactions in the lawsuits, according to the complaints. The lenders charged the owners anywhere from nothing to $74 for the service.

But the escrow companies, whose role was limited only to ensuring reconveyance happened, charged $100 to $140 per loan, the complaints say. The lawsuits claim that tracking reconveyance should be included in the companies' base transaction fees of $350 to $450 and, in any case, would cost nowhere near the fees charged.

David McFerrin paid $113 per loan for reconveyance tracking to SMS Settlement Services, a First American subsidiary that charges commercial customers just $35 per loan for that service, according to the lawsuit. The Jankanishes paid $115 per loan for reconveyance tracking, the lawsuit says.

Consumers tend not to note such charges, which are relatively low compared with many fees involved with buying or selling a home.

But the money adds up for escrow companies, Berman said. "Multiplied by the number of consumers that run through the mill, it's a huge number to them."

The lawsuits also claim that Fidelity National and First American illegally pocketed interest and gained discounted banking services and large lines of credit from money they hold temporarily as part of their transaction coordination.

"Without proper disclosures, these monies belong to the escrow customers, not the title and escrow companies," the lawyers said.

The lawyers will not know just how much money the companies made from this arrangement until they get into the discovery phase of the cases, Berman said. "But we believe it will be in the hundreds of millions of dollars."

The First American lawsuit claims the company charges high wire fees for sending payments to and from banks, despite the fact that banks waive or substantially discount these fees. It gives details about the wire fees only in the case of the Jakanishes, who paid a $70.72 "Wire/Express" fee, "when in truth and fact its bank waived, offset or significantly discounted any such fees."

The lawsuits seek class-action status and potentially could take in millions of homeowners nationwide. They are part of a series of suits buyers have filed against companies involved in real estate transactions over the past two years.

Recent reports by state officials about problems with industries such title insurance, escrow services and mortgage lending have spurred the spate of lawsuits, Berman said.

Berman's firm started pursuing the reconveyance charges while researching a separate potential lawsuit that stemmed from a tip received after media coverage of a third case, he said.

"The effect of these practices is widespread," Berman said in the news release. "If all the title companies are involved in these or similar practices, then likely over half of all residential real estate closings in the past five years will show some form of illegitimate fees being charged or collected by the title companies' escrow agents."

The industry needs more oversight, he said in an interview. "I think the states need to get into this area and really start regulating."